Honeywell CEO: How I'd fix the economyJanuary 25, 2012: 11:16 AM ET
Honeywell CEO David Cote got an inside look into Capitol Hill's machinations when he served on President Obama's debt committee. Now he has some advice for the White House on how to fix the economy.
FORTUNE -- It was nearly 10 years ago when Dave Cote took the helm at Honeywell International. The company isn't readily known to most consumers, but products from the Morris Township, NJ-based technology and manufacturing conglomerate are found almost everywhere – from home thermostats to turnout gear donned by New York City fire fighters.
When Cote took the job as CEO, the company was struggling. He turned down media requests, thinking "right now the last thing we need is me out there saying anything when we've got so much to fix," he says. At the time, a third of the top 200 positions were open after an employee exodus. Under Cote, Honeywell grew from $22 billion in sales to about $37 billion today, and the company's stock surged about 63%.
And with the company transformed, Cote has jumped into the media spotlight. Today he is one of the most outspoken deficit hawks in corporate America. The New Hampshire native visited Fortune's office in New York City last week to talk about a range of topics – from how to manage a diverse company to doing business in China and India to how the U.S. can turn its fragile economy around. Below is an edited transcript.
You have all these disparate industrial businesses. How do you manage it?
One of the ways that we've tried to construct the company is so that there's no product that's so big that it requires my approval. I've always thought it was a bad position to be in as a company if you really had to bet that big on a product.
The way we've tried to construct the company is to create diversity of opportunity – whether it's diversity in the products you provide, the geographies that you're in, the services that you provide, or the new products that you're developing. There's little that I have to weigh in on like that – maybe occasionally – but really not all that much. I am able to devolve all of this to business leaders who understand what we're looking for.
As brilliant as we may think we are today, things change. I've always wanted to make sure we had the kind of flexibility and the kind of opportunity so that no matter how things shifted we would be prepared to move.
Is the way you're doing business in India and China changing?
I would say India is progressing. I would also say the bureaucracy is unbelievable. As bureaucratic as I may feel the U.S. and other countries are, it's like India took the complexity of the British system, doubled it and added 10 times the people. It's mind boggling, and I am amazed how long it takes anything to get done. I have no math to support this. But I have always felt that just government bureaucracy cost India three GDP points a year. And I am a fan of the country.
How about China?
No, China is significantly less bureaucratic. They can make decisions extremely quickly – if they want to, but they don't always want to. I'd say this is an advantage for them right now in their economic growth profile. It could be a disadvantage to them at some point.
What's Honeywell's (HON) plan these days on hiring?
I would say cautious, just because of what the markets are telling us. We started proceeding with an abundance of caution in August. The markets have predicted five of the last nine recessions. The problem is we don't know – is this one of the five or is this one of the four? And when you don't know you don't say 'screw it I'm going to be bold anyway.' What you end up doing is say 'let's pull back and be smart.'
If Honeywell were a barometer for the U.S. economy where do things stand in terms of recovery?
I could tell you how we're planning. We never bought into the idea of 3% growth in the U.S. economy. We thought 2% or less, but not a recession. In Europe, we've assumed a recession. The question is how big? In Asia, we see India and China continue to grow at what we consider a heavy pace, but not as big as in the past just because Europe may drag them down.
Now there are two alternate scenarios here because that's all predicated on governments in Europe and the U.S. doing the minimal amount possible to avoid a disaster.
The unlikely scenario is if Europe aggressively addressed their debt. That's if Germany puts money in and all the other countries actually agree to the kind of spending standards they should. Also, the scenario of the U.S. addressing its debt, which is creating more of an overhang.
However, the reverse of that could happen. You can get a much worse global recession if Europe doesn't even dither. People start balking from the Euro or they just do absolutely nothing – not even the minimum. If the U.S. doesn't even start talking about what we need to do when it comes to addressing our debt then we could end up with another global recession. But if both Europe and the U.S. aggressively address their debt problems there's the potential for a robust global recovery.
You served on President Obama's debt commission and have been one of the most vocal deficit hawks in corporate America today. Do you ever see yourself working in Washington?
No. I like what I'm doing. I'm very well suited for what I'm doing now. I would say there were a couple of things that I ended up learning.
One, I am not a political savant. For me, it was a revelation going through the data on Medicare and Medicaid during the first month. So I couldn't wait to get in there and get started. Everybody said no, we're not going to be talking about this now, it's too sensitive right now. Sensitive or not this is the issue.
If this were Honeywell this might be sensitive but this is the first thing we're going to talk about. You don't nibble at the edges, you start going after the big item. Over there, it's the opposite. They do all the little stuff first and try to get people getting along before you actually start tackling the big item. And even then we didn't do that until the last couple of days and even by then there was just not enough time to address it.
The second thing that surprised me was that partial answers were terrific. I could remember looking at this and saying, 'Oh my God this is an $8 or $9 trillion problem that we have to sort out.' And the push back was that we would have to cut a lot of stuff. So the only thing I really pushed my vote on is that it had to be at least $4 trillion because I'm not going to put my name on something that doesn't' even start to take a first step.
As a CEO, what do you want the White House to do for American business?
If you go back 20 years ago there were 1 billion participants in the global economy. If you look at it today there are about 4 billion participants in the global economy. Yet we as a country act like it's still only 1 billion and don't recognize how much the world has changed and how competition has changed. We need an American competitiveness agenda. There are six items I point to.
First is the debt, which you're not going to have a functioning economy if you have lots of debt. Second is energy policy, which comprises both energy efficiency and energy generation. We need to recognize the two go together.
The third one is math and science education, which I tried to develop in the Simpson-Bowles proposal. There is such a thing as good spending. Infrastructure and math and science education is a place for it. In 2007, the U.S. graduated 450,000 U.S. citizen engineers. China graduated 900,000 engineers. And that is with only with one-third of the same college-age eligible kids going on to school as they would in the U.S. We ought to be thinking about smarter immigration policies and how to develop a Sputnik moment that causes kids to want to be engineers again instead of saying I want to be a lawyer or I want to work on Wall Street.
Fourth one is infrastructure. You just have to go to China for example and just see what they're building – ride some of their highways or go into some of their airports and you find yourself saying this is more likely going to be a successful economic model than how we drive up and down I-95.
Fifth one is free trade and a more nuanced relationship with China. The U.S. relationship to China could very well end up being how 150 years ago the UK had looked at the U.S. And we all know how that story ended up. But China has four times the people. If they just grow at 7% and we grow at 3% it takes them 30 years to get an economy the same size. Nevermind having the same standard of living, which could take another 20 to 30 years. You can see an extremely long time that they could grow extremely well. It's not a question of whether China is good or China is bad. We should instead be thinking it is a force to be reckoned with.
The sixth area, always the businessman's favorite, is tort reform. I understand the need for it to address some of the cavities or inequities in the system but it is possible to go too far. And you don't want to just be fair to the potential claimants. You need to be fair to the people who have to pay also.
If they could do just the debt during the next four years that would be huge. I just don't see us having a conversation out there about how we can compete better in a world that's different than it was 20 years ago. Instead it seems like we're arguing more about our entitlements, who pays, and I just don't feel like we're recognizing what's going on outside.